Macroeconomic modeling of climate change mitigation and impacts

Macroeconomic modeling of climate change mitigation and impacts
Photo: Chuttersnap/Unsplash

The development of economies and societies is interrelated with climate change in manifold ways. Understanding these interrelations is a prerequisite of sound climate policy decision-making. Climate change poses challenges of impacts, adaptation and mitigation. While macroeconomic modelling is an integral part of Integrated Assessment Models of climate change it generally lacks the sectoral and social resolution necessary to provide more than a very rough understanding of the development and distributional effects of climate policies and climate impacts. Moreover, assessments studies so far are not able to integrate mitigation, impacts and adaptation in a meaningful way.

Working Group Leader:

Marian Leimbach




This group aims for a better understanding of the interrelation between economic growth, wealth distribution, climate change impacts and mitigation. The overarching research question is about the development perspectives of societies, economies, and different social groups under various scenarios of climate change stabilization. Our research is clustered around four topics:

(i) impacts

We push forward the integration of damages in integrated assessment (IA) modelling. This includes state-of-the art damage functions from the literature, but also damage functions developed in collaboration with ISIMIP and the group on event-based modeling of economic climate change impacts. In particular, we focus on approaches to account for impact channel-specific damages (e.g. on output, capital, labor productivity), and damages caused by specific biophysical impacts, e.g. tropical cyclones and floods. The latter involves tackling challenges of temporal and spatial aggregation. A special focus is on accounting for different degree of persistence of damages.

(ii) inequality and sustainable development

We study the consequences of climate change impacts and mitigation policies for global and national inequality with our IA modeling system REMIND-MAgPIE. In collaboration with other working groups, we connect this to broader sustainability research by quantifying indicators from the UN Sustainable Development Goals, such as poverty, hunger, or energy access. We further aim to integrate the income distribution and its changes due to climate impacts and mitigation policies directly into our IA modeling framework, allowing for an adjustment of optimal policies to avoid adverse distributional effects. This work is also informed by the development of a household model investigating the transitions in and out of poverty due to the effects of extreme events.

(iii) structural transition

We investigate how macroeconomic structural change (i.e. the transition from an agriculture-based economy via an industry-, towards a services-based economy) interacts with climate change. We ask for example to what extent the rise of industrial activities that are necessary for long-term growth in developing countries is impacted by climate damages and by climate policy requirements that increase the cost of industrial production. Based on profound conceptual and empirical work, we develop a multi-sectoral growth model as a major tool for quantitative scenario analyses.

(iv) global and regional markets

We are interested in the terms-of-trade effects of climate policies. This research, on the one hand, aims to make progress with the representation of imperfect capital markets in integrated assessment models. On the other hand, we want to include bilateral trade flows for parts of the energy trade which can be expected to demonstrate the largest reactions under climate policies.

While the research of the working group is strongly based on different parts of economic theory (growth theory, welfare theory, trade theory, consumption theory), there will also be strong challenges with regard to model calibration and empirical work (econometrics) as well as numerical work (computational economics) linked to couplings in a modular model framework.

Our research will result in findings that may push the frontiers of climate economics. The long-term objective of the research is to improve the existing IA framework, enabling it to integrate climate change mitigation and impacts, and to take the societal heterogeneity into account. This will enlarge the scope of IA analyses by allowing a real integrated assessment with state-of-the art damage components, increase the robustness and credibility of results, allow to properly asses sustainable development pathways, and consequently improve the quality of policy decision-making.

Past projects:

  • 2018-2022: Klimapolitik und Vermeidungsstrategien in global vernetzten und sich entwickelnden Volkswirtschaften: Die Rolle von Strukturwandel und Verteilungseffekten (ROCHADE), BMBF.
  • 2018-2021: Short- and Long-Term Impacts of Climate Extremes - identifying key impact channels and effective strategies for long-term economic development under climate change  (SLICE), BMBF.
  • 2017-2021: CO-designing the Assessment of Climate Change costs (COACCH), EU H2020.